At independence in 1966, Botswana ranked as one of the 10 poorest countries in the world. Just over half a century later, with the help of a significant diamond endowment, the richest on the planet, government has managed to elevate the country from a low-income country to one with a mid-income per capita GDP, as it invested the proceeds of its minerals rent into physical and human capital, and into institutions.
The success of this responsible management is to be seen everywhere, as the World Bank elaborates, “at independence, Botswana had six kilometers of paved roads, three secondary schools, too few healthcare facilities to mention, and a mere 1.5% of the population had completed primary schooling. Today, it has more than 7,000 kilometers of paved roads, more than 300 secondary schools and 95% of Botswanans live within eight kilometers of a healthcare facility, and primary school education is free.”
At a time when its southern neighbor has cold shivers running through its markets, in anticipation of whether or not rating agencies will downgrade the South African sovereign rating to a non-investment grade credit, Botswana has a ranking far from a junk credit. Its upper Investment grade is the highest in Africa.
Government acknowledges, however, that among the challenges it faces, a high HIV/Aids infection rate (the second highest in the World) slows growth. It recognizes it has to diversify the economy, away from an overdependence on mining – especially diamonds – to areas that can carry GDP growth forward. For this reason, it has rolled out the National Development Plan (NDP-11) into tourism, construction, energy and transport. In short, government has assessed that doing the same is not good enough, and to use the worn cliché, diamonds will not be forever.
It has not forgotten where the roots of its humble existence began, and has not forsaken the mining sector’s contribution to the growth in its output, for beneath its soil, lies some 200 billion tons of coal – an estimated two thirds of Africa’s total – a happy co-existence with the volcanic diamond treasures its fiscus holds so dear, and which government manages proceeds from in its public-private partnership venture with Debswana. With so much focus on mineral wealth, it is easy to forget where other areas of promoting economic growth exist. A good example is Botswana’s biodiversity of resources, such as the Okavango Delta, as well as the Kalahari and Chobe, which boost eco-friendly tourism uplift socio-economic conditions of rural communities.
While the need to diversify the economy grows urgent, there is a frank acknowledgment that government cannot do this on its own. This land-locked country faces challenges from climate change, and has a critical shortage of water and electricity, which threaten any sustainable moves to diversify the economy. Also, government will not hesitate to engage the help of the private sector.
As controversial as the decision may have been to close loss-making copper and nickel mines, the government has indicated a strong resolve to protect its hard-earned fiscal integrity, making any adjustment it deems necessary which would shield the taxpayer, despite mine closures shedding jobs.
Another indication of this responsibility was the decision taken by the Botswana Power Corporation to shed its loss-making Morupule B power station. The drive to privatize the state-owned enterprises theoretically embraces the concept of Public-Private Partnerships, structures considered to be generally successful.
Cash is falling out of fashion – will it disappear forever?
Although 4.3% GDP growth in 2016 may not be high by historical standards, it remains a solid base against which key financial stability ratios can be monitored by credit rating agencies. A surplus of 16% of GDP on the current account of the balance of payments, and an almost negligible budget deficit of -0.7% of GDP, appear to have underpinned the decisions by the rating agencies to maintain the upper investment grade ratings by S&P (A-) and Moody’s (A2) last April.
If there is a conundrum that policymakers have to solve, it is not that GDP growth must be diversified, and that a stronger export base will drive growth in output sufficiently to alleviate poverty and income inequality, but rather that the success of economic diversification will be reflected in economic intangibles, such as better levels of education, better healthcare, better institutions to manage the rents derived during times when economic cycles are more volatile and in better regulating private enterprise. – Written by Colen Garrow